CEO Power and Mergers and Acquisitions

49 Pages Posted: 6 Mar 2014 Last revised: 6 Feb 2024

See all articles by Ning Gong

Ning Gong

Deakin University; Financial Research Network (FIRN)

Lixiong Guo

University of Mississippi

Date Written: June 21, 2015

Abstract

We find CEO power in acquiring firms can explain the occurrence of both large value creation and destruction deals in M&A. Specifically, we find firms with powerful CEOs make fewer deals and the returns on those deals are less dispersed. Firms with powerful CEOs are also less likely to do all cash deals and use a larger proportion of stocks in payments. We relate this to the incentive of powerful CEOs to avoid making big salient mistakes in major firm decisions to protect them from adverse career consequences. However, we also find that firms with powerful CEOs are more reluctant to withdraw deals given negative market reactions to the announcements of the deals, which suggests that powerful CEOs do pursue deals that increase their private benefits of control while avoiding deals with high ex ante uncertainty. Our evidence offers a new perspective on M&A deals with extreme returns and CEO objectives.

Keywords: CEO Power, Mergers and Acquisitions, Large Value Creation and Destruction

JEL Classification: G34

Suggested Citation

Gong, Ning and Guo, Lixiong, CEO Power and Mergers and Acquisitions (June 21, 2015). FIRN Research Paper, Available at SSRN: https://ssrn.com/abstract=2404952 or http://dx.doi.org/10.2139/ssrn.2404952

Ning Gong

Deakin University ( email )

Department of Finance
Faculty of Business and Law
Burwood, Victoria 3125
Australia
+61 3 9246 8492 (Phone)

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Lixiong Guo (Contact Author)

University of Mississippi ( email )

Oxford, MS 38677
United States

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